Is Pfizer making up for lack of innovation?

Pfizer’s penchant for big deals has culminated in a mega deal with Wyeth. Pfizer has agreed to pay $68 billion to acquire its long-time US-based rival in the largest pharmaceutical deal in nearly a decade.

Jeff Kindler, Pfizer’s top boss, had said just last year that big deals could be “very disruptive.” However, the company is at it again.
Observers maintain that as in the past, the coming together of two large drug companies does not necessarily help in making discovery research any more productive.

An international news wire agency said desperation has led Pfizer to the deal.
Pfizer hasn’t produced too many great drugs on its own in the last eight years, even though its research budget has ballooned from $4.7 billion in 2000 to over $8 billion now.

Historically, Kindler’s predecessors have done deals to primarily secure its tottering future. Pfizer bought Warner Lambert in a nearly $100 billion pact in 2000, one of the biggest across industry segments till date, to control full rights over its reigning cash cow Lipitor or atorvastatin, the biggest drug brand ever used to reduce cholesterol.

At the time Warner Lambert merged into Pfizer, Lipitor had sales of just $5 billion. That figure has now swollen to over $13 billion in worldwide sales and with over 20% of its $48 billion global revenues coming from that one drug, Pfizer’s vulnerability is showing. Credit to Pfizer and the drug’s inherent qualities though, Lipitor is still branded as a best-in-class compound in the wide range of statin drugs available today. 

In 2003, Pfizer did one more big splash, buying out Pharmacia, but that buyout failed to yield great results as most anti-inflammation drugs in the category of Cox-2 inhibitors, led by Merck’s Vioxx, were dumped by the US FDA. Celebrex, part of the Pharmacia stable, was also severely hit.

Over the last one year, though Kindler pointed out many times that Pfizer is taking measures to cushion itself from the Lipitor patent expiration cliff of 2011, nothing admirably strong or dramatic had been done so far. Obviously, Pfizer came under criticism from analysts for not making good use of its cash reserves, accumulated over the last many years. Rightly so!

While Pfizer’s business rivals, GSK, J&J and Eli Lilly, have been bulking up their innovative research capabilities by buying out smaller drug firms or in-licensing new products for development, Pfizer had been much slower in lapping up smaller companies or compounds.

Pfizer has also been slower in controlling costs and coming up with out-of-the-box concepts like the FIPNET (Fully Integrated Pharmaceutical Network), one of the most successful ventures of Eli Lilly, designed to harness the knowledge of scientists through its global virtual research network.

Pfizer has been silent in trying to spread out its revenue sources unlike Merck or Lilly. While Merck and Lilly recently expressed their intent to branch into follow-on biologics, Pfizer has kept analysts guessing on how it wants to build a future that could keep it on top of the global pharmaceutical rankings.

Pfizer’s reluctance to change is evident from the fact that it has moved much slower in outsourcing research work to India compared with its other US or European counterparts. Wyeth has been more open to sourcing from India and going by insiders, its many years of association with GVK Bioscience has yielded satisfactory results.

What Pfizer has done in order to reduce costs is cut staff ruthlessly or narrow down its focus on areas that it researches.

In a shocking announcement, many months ago, Pfizer had said it will come out of the cardiovascular drug research and concentrate on areas such as Alzheimer’s disease and oncology. Though cardiovasculars is the largest disease segment in the world, the high costs of undertaking clinical trials for cardiovascular drugs may have prompted that decision by Pfizer.

Not that Wyeth itself is in a great shape and does not need a big bang deal. Like Pfizer, Wyeth faces expiry on two of its top brands — anti-depressant Effexor XR and anti-ulcer blockbuster Protonix. But, with a research pipeline much better than that of Pfizer, its future does not look to risky. Plus, Wyeth has some strong brands such as Prevenar, which is one of the best sold vaccines and biotech drug Enbrel, the osteoarthritis drug.

The effectiveness of a Pfizer Wyeth combine will depend on how differently the two entities think of the future. Maybe a transformation into biotechnology would help get more drugs into the market and save Pfizer from falling off its present and the glorious past.

Also important is the fact that both the companies have stressed on the need for a robust presence in the emerging markets. So, for multinational pharmaceutical companies, the India story is not oversold, though some critics have started saying that in the light of the downturn in the economy.

Pillman is an executive closely linked to the global pharma industry